What Australian biotech needs to compete globally
June 21, 2019
Australia aims to be more than a destination for clinical trials, and an influx of cash is helping the country’s biotech sector fill its translational gap. But like other emerging biotech hubs, talent and a higher appetite for risk will be needed to compete on a global scale.
Over the past decade, Australian biotech has seen marked growth, due in large part to a series of government-backed initiatives and funds designed to boost its translational science, which has historically lagged its academic research and clinical trial capabilities.
“There is almost triple the amount of venture capital for life sciences than there was ten years ago, and government has almost doubled its investment in the sector with some of the funding going towards translational research,” said Chris Nave, managing director of Brandon Capital Partners, the largest life science VC firm in Australia.
“Australia is biology rich but molecule poor , and its the molecules that will drive any investment or partnering.” – Mark Ashton, UniQuest
Five Australian VCs and entrepreneurs interviewed by BioCentury agreed that those are big steps in the right direction. But they think more needs to be done to raise enough capital and recruit enough talent to match the region’s research pace, and to provide incentives to pursue more high-risk investments.
Australian life science VCs have generally favored investments that require less upfront cash, such as medical devices and single-asset or single-target plays. Moving to more complex platform plays that can deliver whole pipelines or push the innovative envelope would help bring more sustained growth, but getting there will likely require increased confidence in the sector via solid returns and even more available capital.
To bring Australian biotech to the global stage, the local VCs and entrepreneurs argued for scaling up the translational initiatives emerging from research institutions, implementing talent mentoring and recruitment programs from overseas, and capitalizing on the clinical trial capabilities that are attracting multinational companies to the country.
TRANSLATING WITH GOVERNMENT HELP
The Australian government’s push to invigorate the biotech industry began almost a decade ago with a tax incentive that changed the game for both domestic biotechs and multinational companies.
In 2011, the government introduced the R&D Tax Incentive, which provides small companies that have an annual turnover of less than AU$20 million ($13.83 million) with a 43.5% cash refund on qualified R&D spending. Larger companies are eligible for a 38.5% tax offset.
“The tax incentive changed everything. Obviously we have many companies that operate at a loss for a decade or more while products are in development, and this enabled non-dilutive capital to flow back into the sector,” said Lorraine Chiroiu, CEO of AusBiotech Ltd., Australia’s biotechnology industry organization.
The tax incentive, along with fast clinical trial approvals relative to other regions, has also led multinational pharmas to set up Australian subsidiaries in order to qualify for the tax rebate, and many companies are conducting Phase I and II trials in Australia.
The benefit to multinationals flows down to local biotechs, who can capitalize on the expertise of the larger companies in conducting their own early stage trials, said Chiroiu.
The hope is for multinational pharmas to also expand their research operations to Australia, “bringing more funding, talent and opportunities to Australia,” said Mark Ashton, executive director of IP commercialization at UniQuest Pty. Ltd., the commercialization vehicle for the University of Queensland.
Another life-sciences focused government initiative is the Medical Research Future Fund (MRFF), a AU$20 billion ($13.83 billion) fund established in 2014 that earmarks more than AU$600 million ($414.97 million) per year for medical research and translation.
“There is almost triple the amount of venture capital for life sciences than there was ten years ago.” – Chris Nave, Brandon Capital
Among the 12 MRFF priorities for the 2018-2020 period is translational research infrastructure that can accelerate preclinical research.
More recently, the government teamed up with private investors to launch a translation initiative, establishing the AU$500 million ($345.81 million) Biomedical Translation Fund (BTF) in 2016. The government is contributing AU$250 million ($172.90 million), and private investors are contributing the other half. The funds will be managed by the three private VC firms to advance translational science.
Brandon Capital was appointed to manage AU$230 million ($159.07 million) of the BTF fund, and allocated AU$25 million ($17.29 million) to Certa Therapeutics Pty. Ltd., a company developing precision medicine for kidney fibrosis.
According to Certa CEO Darren Kelly, an Australian entrepreneur who previously founded companies including Fibrotech Therapeutics Pty. Ltd., “Trying to raise $7 million for Fibrotech in 2006 was nearly impossible. The system is so different now, but there’s still a ways to go,” he said. Fibrotech was acquired by Shire plc in 2014 for $75 million upfront plus undisclosed milestones. Shire was acquired by Takeda Pharmaceutical Co. Ltd. earlier this year.
PRIVATE INDUSTRY DRIVERS
Private organizations have also been doing their part to drive innovation and translation.
Brandon Capital’s Medical Research Commercialisation Fund (MRCF) is designed to bring together innovators from across Australia to fund their projects and foster collaboration. Brandon Capital closed its fifth MRCF fund at AU$210 million ($145.24 million) in May.
“We started MRCF because Australia is good at medical research, but poor at translating that to outcomes. We needed models to address that,” said Nave.
MRCF includes more than 50 member medical research institutes and hospitals across Australia and New Zealand. Nave told BioCentury that every six to seven weeks, the institutions come together to pitch ideas to the fund. That not only brings in new investments, he said, but it also promotes collaboration and idea sharing among the investigators.
Select Australian research institutions are also rallying to the translational cause.
“Australia is biology rich but molecule poor, and it’s the molecules that will drive any investment or partnering,” said Ashton.
Notably, University of Queensland’s UniQuest has created 100 startups based on IP originating from the university.
UniQuest also established the Queensland Emory Drug Discovery Initiative (QEDDI) in 2016 with the Queensland government and Emory University to translate academic biology to drug candidates and develop first-in-class products. QEDDI has generated a pipeline of five projects in just over two years, two of which are in lead optimization.
BioCurate, a JV between the University of Melbourne and Monash University, was formed the same year with support from the State of Victoria to catalyze translation.
The goal now is to expand these kinds of initiatives across Australia, Ashton said.
UniQuest and BioCurate teamed up with two other organizations in February to do just that. Along with MTPConnect, a growth center for the pharma and medtech industries, and the Medical Device Partnering Program incubator, they will provide grants for proof-of-concept work across Australia through funding from the Biomedical Translation Bridge program, a MRFF initiative that will provide AU$22 million ($15.22 million) over four years.
SINGLE ASSET FOCUS
Getting to a globally competitive position may ultimately require increased investment in highrisk innovation.
Technologies including medical diagnostics and single assets that offer a quick or clear path to market are beginning to excel in Australia, while more complex platforms remain underfunded.
The low appetite for risky, early stage technologies isn’t unique to Australia, but it may be more pronounced because the investment community is so small.
“To develop confidence in a platform story, one has to have a very strong confidence in the value of the individual products that emerge from the platform,” said Leighton Read, venture partner at Brandon Capital’s Palo Alto branch, adding that the physical distance between the Australian companies and the U.S. markets they target has made it harder to build platforms, even if the technology insights are there.
The small size of the Australian market means most Australian biotechs aim first for the U.S.
“Trying to understand an overseas market as the primary reward is easier to figure out for single assets.” – Leighton Read, Brandon Capital
“Trying to understand an overseas market as the primary reward is easier to figure out for single assets,” he said.
Nave told BioCentury that the majority of Brandon Capital’s investments are in single-target companies, and the firm is “cautious about platform technologies where the company itself is unable to demonstrate the platform with its own product.”
He added that relying on licensing partners to develop their technology makes it difficult to control the investment’s destiny.
“It is probably fair to say that Australian VCs have a tendency to invest in companies around single assets. That’s not ideal with regards to building a biotech industry, but hopefully this will change over the near term as some of those single asset companies exit successfully and provide more confidence in the sector,” said Ashton.
One of the biggest challenges in any emerging biotech hub is attracting talent and serial entrepreneurs, and Australia is not exception. Australian VCs and entrepreneurs are launching new initiatives to tackle the problem.
“I think the industry is even more hampered by talent than by cash right now. We’re building company formation talent, so that will change,” said Read.
Brandon Capital is implementing mentoring programs and housing early stage companies in the firm “to incubate young CEOs to accelerate their professional development and capabilities,” he said.
Certa’s Kelly, who is also an entrepreneur in residence at Brandon Capital, said the next generation of innovators “is different and has more entrepreneurial spirit,” which he thinks will lead to change across the industry. “I’ve seen a cultural shift towards research commercialization as post-graduate students are increasingly interested in pursing the alternative career path that commercialization offers.”
In the meantime, Read thinks the best way to get more talent in Australia is to bring in people from abroad. “Finding ways to bring people into Australian companies, or create a structure that includes people in the U.S. and Australia is a good strategy,” he said.
Ashton said that while QEDDI is designed to translate biology to molecules, it also aims to attract talent to Australian biotech.
“A lot of Australian investors are interested in single-asset companies, which discourages talent recruitment because once a company is sold, they don’t know what they’ll do,” he said. “We’re trying to build pipelines and longevity that will attract overseas talent. There has to be an industry for people here to come to, and people are now starting to look. We’re also seeing people looking to move back to Australia as the industry grows, as we’re seeing in China.”
COMPANIES AND INSTITUTIONS MENTIONED
AusBiotech Ltd., Melbourne, Australia
Certa Therapeutics Pty. Ltd., Melbourne, Australia
Emory University, Atlanta, Ga.
Monash University, Melbourne, Australia
Takeda Pharmaceutical Co. Ltd. (JASDAQ:4502; NYSE:TAK), Tokyo, Japan
UniQuest Pty. Ltd., Queensland, Australia
University of Melbourne, Melbourne, Australia
University of Queensland, Queensland, Australia
21 June, 2019